Remain on interest only and save capital or revert to interest and capital?

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cofee

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Hi
Maybe this should be in mortgages but it's kind of an investment question.

We have an investment property with 120k mortgage, remaining term 18 years, tracker rate 2.5%.(PTSB)
We were on interest only for 6 years but forced to go back on int and capital or lose tracker. We paid int and cap for awhile but then I went on unpaid maternity leave so requested int only for 6 months. They said yes, then extended it for another 6 months. Now have offered interest only for remaining term.

But I am back to work next month and can kind of afford int and cap again.
My question is, what makes more sense, paying the interest and capital on the mortgage or taking the interest only offer and investing the capital we would have been paying in a higher interest yielding account. Ok so my answer is there but am I missing something?
 
Your tracker rate is 2.5% ( or ECB + 2.5%?)

You will get tax relief on 75% of this or on1.875
The tax relief will be worth 50% or .9375
So your net rate after tax will be around 1.5%

If you put your savings on deposit, you will get only around 1% after tax. So it's better to pay off your tracker than to put the money on deposit.

So should you buy shares instead, as, in the long term, you would expect to get in excess of 1.5% net?

I think not, given that you have struggled with the mortgage before. The safest option is to reduce the capital.

So, accept the offer of interest only,but pay capital off the mortgage. This means that if you ever need to, you can revert to interest only.

Other issues to consider
If you have a mortgage on your home, you should keep the tracker on the investment and pay off the capital on that.

You may get more than 1.5% net by contributing to a pension fund, but of course, you won't be able to access your money until you retire.
 
Thanks Brendan

Silly question but if we accept the interest only offer then how do we pay the capital off? On a monthly basis or send in a cheque annually? Or how?

Thanks
 
Hi Brendan

I was also just wondering whether accepting the interest only period would affect our credit rating or would this be a consideration to factor in.

Thanks
 
cofee said:
Silly question but if we accept the interest only offer then how do we pay the capital off? On a monthly basis or send in a cheque annually? Or how?
Click to expand...

Whatever way you want. Set up a standing order and pay it every month would seem the easiest.
 
cofee said:
I was also just wondering whether accepting the interest only period would affect our credit rating or would this be a consideration to factor in.
Click to expand...

If you think you might be borrowing, you probably should not be repaying capital!

It's probably unlikely that ptsb would lend you further money, but I don't think it should affect your Credit Rating generally. Your existing reschedules are probably noted on your ICB record, but they don't affect your credit score.
 
OP, you may find that the mortgage account number will not allow a standing order to be set up. I know some banks have mortgage accounts that don't, they only allow direect debits.

What I have seen done in similiar cases is that folk put the funds aside in maybe a separate account with the lending bank and then maybe annually write to them authorising them to take x amount from that account
 
Hi ircoha

That is very interesting. The Consumer Credit Act allows people to pay amounts off their mortgage whenever they want. If a Direct Debit is not allowed, they can just go to the bank and lodge the money every month.

Brendan
 
Thanks for the tips and info.

I will ring the bank and see how we can overpay.

Thanks
 
Brendan Burgess said:
Hi ircoha

That is very interesting. The Consumer Credit Act allows people to pay amounts off their mortgage whenever they want. If a Direct Debit is not allowed, they can just go to the bank and lodge the money every month.

Brendan
Click to expand...

Brendan,
Its a tech issue in some banks.

Did you mean DD or SO.

To take an example I am familiar with.
Customer of Bank A has two accounts shown online.
Current/working account and Mortgage/Loan Account.

Customer wanted to set up an SO (customer controlled) from Current to Loan.
Online system says loan account doesn't allow it.
Called bank, who confirmed that that loan account only took funds electronically by DD ( bank controlled).
Have no experience of manual cash lodgements to such accounts.
...
For whats it is worth, I have implemented a few equity release products based on the borrower's amount starting small and building up: say euro 500/ month.
Some banks couldn't set up a DD from the loan account to the current account so wouldn't do the product.
They wanted to lend say 50k in one go and have it serviced by DD.
 
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